Computer system and methods for management, and control of annuities and distribution of annuity payments

ABSTRACT

A computer system and methods for management and control of annuities and distribution of annuity payments is presented which enables transfer of funds between annuities, whether variable or fixed, without incurring payment discontinuity, while providing for allocation of interest risk, investment risk, and mortality risk between insurer and insured.

This is a continuation of application Ser. No. 09/140,715, filed Aug.26, 1998.

FIELD OF THE INVENTION

The present invention relates to methods and apparatus for managementand control of annuities and distribution of annuity payments.

BRIEF DESCRIPTION OF THE PRIOR ART

Annuities are contracts issued by insurers that provide one or morepayments during the life of one or more individuals (annuitants). Thepayments may be contingent upon one or more annuitants being alive (alife-contingent annuity) or may be non-life-contingent. The payments maybe made for a fixed term of years during a relevant life (an m-yeartemporary life annuity), or for so long as an individual lives (wholelife annuity). The payments may commence immediately upon purchase ofthe annuity product or payments may be deferred. Further, payments maybecome due at the beginning of payment intervals (annuities-due), or atthe end of payment intervals (annuities immediate). Annuities thatprovide scheduled payments are known as “payout annuities.” Those thataccumulate deposited funds (e.g, through interest credits or investmentreturns) are known as “accumulation annuities.”

Annuities play a significant role in a variety of contexts, includinglife insurance, disability insurance, and pensions. For example, lifeinsurances may be purchased by a life annuity of premiums instead of asingle premium. Also, the proceeds of a life insurance policy payableupon the death of the insured may be converted through a settlementoption into an annuity for the beneficiary. An annuity may be used toprovide periodic payments to a disabled worker for so long as the workeris disabled. Retirement plan contributions may be used to purchaseimmediate or deferred annuities payable during retirement.

A life annuity may be considered as a guarantee that its owner will notoutlive his or her payout, which is a guarantee not made by non-annuityproducts such as mutual funds and certificates of deposit (CDs). (Notethat the terms “owner,” “annuitant,” “annuity purchaser,” or “investor”need not refer to the same person. Herein, the terms will be usedinterchangeably with the meaning being understood by context.) Payoutannuities can provide fixed, variable, or a combination of fixed andvariable annuity payments. A fixed annuity guarantees certain paymentsin amounts determined at the time of contract issuance. A variableannuity will provide payments that vary with the investment performanceof the assets that underlie the annuity contract. These assets aretypically segregated in a separate account of the insurer. A combinationannuity pays amounts that are partly fixed and partly variable.

Both fixed and variable annuities can guarantee scheduled payments forlife or for a term of years. A fixed annuity offers the security ofguaranteed, pre-defined periodic payments. A variable annuity alsoguarantees periodic payments, but the amount of each payment will varywith investment performance. Favorable investment performance willgenerate higher payments. This is a major benefit during inflationaryperiods because the growth in payments may offset the devaluation ofmoney caused by inflation. In contrast, fixed annuities provide fixedpayments that become successively less valuable over time in thepresence of inflation.

Although investment returns are not guaranteed to the owner of avariable annuity, the owner has the opportunity to achieve investmentresults that provide ultimately higher payments than provided by thefixed annuity payment. The range of investment options associated withvariable annuity contracts is quite broad, ranging from fixed income toequity investments. Typically, the consideration paid for the variableannuity fund will be used to purchase the underlying assets. Theannuitant is then credited with the performance of the assets.

At all times, the insurer must maintain adequate financial reserves tomake future annuity benefit payments. The reserves of an annuity fundand the benefits payable will be affected by a plurality of factors suchas mortality rates, assumed investment return, investment results andadministrative costs. Actuarial mortality tables may be used todetermine the expected future lifetime of an individual and aggregatesof individuals. The future lifetime may be thought of as a randomvariable that affects the distribution of payments over time for asingle annuity or aggregates of annuities. Typically, mortalityassumptions will be made at the time of contract issuance based uponactuarial mortality tables. Mortality tables may reflect differences inactuarial data for males and females, and may comprise different datafor individual markets and group markets. The insurer bears the riskthat the annuitant will live longer than predicted. The annuitant bearsthe risk of dying sooner than expected. The future performance of theunderlying investments may also be estimated by assuming an expectedrate of return on the investments. The investment performance willaffect the available reserves in any given payment interval and willalso affect the present value of a benefit payment to be made in a givenpayment interval. The present value of a single payment to be made inthe future may be thought of as a random variable:

y _(t) =b _(t) v _(t)

where y_(t) is the present value of the benefit payment, b_(t), andv_(t) is the interest discount factor from the time of payment back tothe present time. Thus, v_(t) is itself a random variable dependent uponmarket factors.

The present value of an annuity is therefore a random function, Y, ofrandom variables representing interest and the future lifetime of theannuitant. The actuarial present value, ä_(x), of an annuity for a lifeat age x 10 is the expected value of Y, E[Y]. For example, for awhole-life annuity-due that pays a unit amount at each payment period,k, the actuarial present value of the annuity may be expressed as:$\begin{matrix}{{\overset{¨}{a}}_{x} = {\sum\limits_{k = 0}^{\infty}\quad {v_{k}^{k}p_{k}}}} & (1)\end{matrix}$

where: v^(k) is the interest discount factor for a payment at the kthpayment interval and _(k)p_(x) is the probability that a life at age xsurvives to age x+k, as determined from actuarial mortality tables. Tosimplify analysis, it is commonly assumed by actuaries that theeffective interest rate, i, is constant, so that the discount factor vis a constant given by v=(1+i)⁻¹.

Equation (1) defines a backward recursion relation for determining theactuarial present value of the annuity at any interval k, as follows:$\begin{matrix}{\begin{matrix}{{\overset{¨}{a}}_{x} = \quad {1 + {\sum\limits_{k = 0}^{\infty}\quad {v_{k + 1}^{k + 1}p_{x}}}}} \\{= \quad {1 + {{vp}_{x}{\sum\limits_{k = 0}^{\infty}\quad {v_{k}^{k}p_{x + 1}}}}}} \\{= \quad {1 + {{vp}_{x}{\overset{¨}{a}}_{x + 1}\quad {so}\quad {that}}}} \\{{\overset{¨}{a}}_{x + k} = \quad {1 + {{vp}_{x + k}{\overset{¨}{a}}_{x + k + 1}}}}\end{matrix}\quad} & (2)\end{matrix}$

Similarly, recursion relations can be developed for other types ofannuity structures.

The growth of the annuity funds will depend on the payments, b_(k), madeat each interval, the investment returns on the funds, the premiums paidinto the fund by the purchaser, and any expenses charged against thefund. Expenses incurred by the insurer will include taxes, licenses, andexpenses for selling policies and providing services responsive tocustomer needs.

A typical annuity contract incorporates fixed assumptions concerningmortality and expenses at the time of contract inception. Positive oradverse deviations from these assumed distributions will be absorbed bythe insurer. For a fixed annuity, the insurer bears the risk that theinvestment return guaranteed to the contract holder will be greater thanthe actual market performance attainable by investment of the fixedpremium or premiums received from the payee.

In contrast, for a variable annuity, the risk that the investment returnon assets underlying the annuity will exceed or fall below an investmentreturn rate assumed at the time of contract issuance is passed to thecontract holder.

This is done by computing a subsequent payment, b_(k+1), due at timek+1, from a prior payment, b_(k), at time k according to:$\begin{matrix}{b_{k + 1} = {b_{k}\quad \frac{1 + r_{k + 1}}{1 + i}}} & (3)\end{matrix}$

where:

r_(k+1) is the actual investment return in the interval from k to k+1;and

i is the assumed investment return (AIR).

(See, e.g., “Actuarial Mathematics,” 2nd Ed., Bowers, et al., 1997,chapter 17.)

Clearly, if the assumed investment return (AIR) is smaller than theactual return (less expenses), the benefit level of a variable annuitywill increase. Conversely, if the actual return (less expenses), fallsbelow the AIR, the benefit level will decrease. Thus, the investmentrisk is borne by the annuity investor. Since variable annuity investorsgenerally prefer that benefits increase rather than decrease over time,insurers will choose an AIR that is lower than the expected value of theactual investment return. For example, in recent markets the AIR hasbeen in the range of about 4 to 6%.

The net consideration, π_(NET), for a paid-up annuity divided by theactuarial present value of the annuity for a life at age x establishesthe initial value for the recursion relation of equation (3):

b _(o)=π_(NET) /ä _(x)  (4)

For a fixed annuity, all payments are equal so that:

b _(k+1) =b _(k) =b _(o)=π_(Net) /ä _(x)  (5)

However, the actuarial present value of the variable annuity istypically larger than the actuarial present value of the fixed annuity.This is because the AIR for a variable annuity tends to be lower thanthe return that may be assumed for a fixed annuity. A lower AIR resultsin a higher actuarial present value which in turn results in a lowerinitial benefit. Therefore, for the same net consideration, the initialpayment of the variable annuity will be lower than the fixed paymentprovided by the fixed annuity. However, a lower AIR will result infuture payments that increase faster or decline slower than would resultfrom a higher AIR.

In order to achieve the same initial payment for both fixed and variableannuities, given the same net consideration, while ensuring adequatereserves, the actuarial present value of the variable annuity could bedecreased by increasing the assumed investment return. But this woulddecrease the rate of growth of future payments to the annuity investor,thereby detracting from the marketability of the variable annuity. Thus,although present variable annuity systems have the desirable featurethat payments will ultimately rise above the fixed level provided by thefixed annuity system, they possess the undesirable feature of lowerinitial payment levels.

Another disadvantage of presently available annuity systems is theinability to effectuate investor-preferred transfers from fixed tovariable systems without incurring an undesirable future paymentdistribution. Using the paid-up annuity as an example, the netconsideration allocable to the variable system at the time of transfer,k≧0, from a fixed system will depend on the market value of the fixedannuity at time k:

π_(NET)(k)=ä _(x+k) ^(F) b ₀ ^(F)  (6)

where the superscript, F, denotes values for the fixed annuity and b₀ isthe level fixed annuity payment. Upon transfer, the. payment at time k+1will be: $\begin{matrix}{b_{k + 1} = {\frac{{\overset{¨}{a}}_{x + k}^{F}b_{0}^{F}}{{\overset{¨}{a}}_{x + k}^{V}} \cdot \frac{1 + r_{k + 1}}{1 + i}}} & (7)\end{matrix}$

where the superscript, V, denotes values for the variable annuity.

Assuming once again an investment return for the variable annuity lowenough to ensure that payments will increase over time and assuming ahigher investment rate for the fixed annuity to ensure a valuation ofthe fixed annuity that is fair to the investor, then ä_(x+k)^(F)<ä_(x+k) ^(V). Therefore, the discontinuity factor R′=ä_(x+k)^(F)/ä_(x+k) ^(V) will be less than 1, and the investor's desiredpayment will be reduced by the factor R′, and all subsequent futurepayments will be reduced. Comparable adverse consequences can easily bedemonstrated for a transfer from a variable system to a fixed system.

Therefore, a need exists for a variable annuity system that providesinitial payments as high as the fixed payment provided by the fixedannuity, while allowing transfer from a fixed annuity to the variableannuity and vice versa without incurring an undesirable future paymentdistribution resulting from the transfer.

SUMMARY OF THE INVENTION

Objects of the present invention are therefore to provide systems andmethods for management and control of annuities and distribution ofannuity payments that allow for transfers from fixed to variableannuities and vice versa without incurring undesirable future paymentdistributions. A further object of the present invention is to provide avariable annuity option with an initial payment as high as the paymentprovided by a fixed annuity for the same net consideration.

The present invention comprises an annuity system that allows transfersto or from a fixed annuity without discontinuity in the paymentdistribution to the annuitant. The invention also further allows for theinitial payment of the variable annuity to be the same as the fixedannuity payments. This is accomplished by setting the initial payment ofthe variable annuity at the time of transfer or purchase equal to thefixed annuity payment and deriving the subsequent payments based onmarket interest rates at the time each payment is made. Each subsequentpayment is based on a current pricing interest rate rather than a fixedassumed investment rate (AIR). The pricing interest rate may vary ateach payment interval and may be tied to an objective market interestrate or indicator such as a treasury rate, a corporate bond rate, orother objective rate.

Compensation for the change in actuarial present value of the annuity asa result of a change in interest rates between payments is provided byan interest adjustment factor in the payment progression function. Thus,the annuitant receives full valuation of the transferor annuity withoutincurring an unfavorable future payment distribution from the transfereeannuity.

A key advantage of the annuity system of the present invention is theenhanced flexibility offered to the contract owner. Permitting transfersout of the fixed fund allows the owner to change an otherwiseirrevocable decision associated with fixed annuities. Funds allocated tothe fixed fund can easily be transferred to a variable annuityinvestment fund at market value. To do this, future fixed annuitypayments are discounted at current pricing interest rates and the amountof the transfer is transferred to an investment division correspondingto the assets underlying the variable fund.

The present invention may be implemented to provide payments that arepart fixed and part variable. The investor may transfer some or all ofhis or her annuity funds from fixed annuities to variable annuities,from variable annuities to fixed annuities or from variable annuities tovariable annuities. Payments from the transferor fund are reduced inproportion to the amount transferred, whereas the payments from thetransferee fund are increased in proportion to the amount transferred.

The new method offers several key benefits to the annuity owner. Theseinclude: (1) the ability to move funds between fixed and variableannuities; (2) variable payments that start at the same level as fixedannuity contracts; (3) no undesirable payment distribution is incurredupon transfer to other investment choices; and (4) there is potentiallyless volatility in future payments.

These and additional features and advantages of the present inventionwill become further apparent and better understood with reference to thefollowing detailed description and attached drawings.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1 is a diagram of a preferred embodiment of the present invention;

FIG. 2 is a diagram of a transfer from a fixed fund to a variable fund;

FIG. 3 is a diagram of a transfer from a variable fund to a variablefund;

FIG. 4 is a diagram of a transfer from a variable fund to a fixed fund;and

FIG. 5 is an illustration of payment progression functions.

DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS

A diagram of a preferred embodiment of the present invention is shown inFIG. 1 as system 5. The functions of system 5 may be implemented inspecial purpose hardware or in a general or special purpose computeroperating under the directions of software, and in conjunction withmemory storage and input/output devices. In a preferred embodiment thefunctions of system 5 are controlled by software instructions whichdirect a computer or other data processing apparatus to receive inputs,perform computations, transmit data internally, transmit outputs andeffectuate the receipt and transfer of funds as described herein. Thepresent invention provides a system for managing and controllingannuities and distribution of annuity payments, comprising: (1) datastorage for storing in accessible memory (a) transfer requests fortransferring amounts among said annuities, (b) annuity pricinginformation for determining pricing interest rates for said annuities,(c) asset price information for determining actual rates of returns forassets underlying said annuities, (d) mortality data for each annuitantof said annuities; and (2) a data processor for (a) deriving pricinginterest rates from said annuity pricing information, (b) determiningactual rates of returns for said underlying assets of said annuitiesfrom said asset price information, (c) computing actuarial presentvalues and fund reserves from said pricing interest rates and saidmortality data, (d) computing investment performance factors from saidpricing interest rates and said actual rates of return, (e) computinginterest adjustment factors from said actuarial present values, and (f)determining payment progressions for said annuities from said investmentperformance factors and said interest adjustment factors. The systemfurther provides for transferring funds between annuities andtransferring payments from said annuities to memory locationsrepresentative of separate annuities of payees. Memory storage may beprovided by any suitable storage medium that is accessible by the dataprocessor used to implement the invention. Examples include, randomaccess memory, magnetic tape, magnetic disk,or optical storage media.

Referring to FIG. 1, administrative system 11 maintains functionalcontrol of system 5 and is preferably implemented as a main program of asoftware program that comprises various subroutines or modules toperform the functions of the present invention described herein. Varioussoftware structures may be implemented by persons of ordinary skill inthe art to implement the present invention. The invention is not limitedto the embodiments described herein.

Administrative system 11 receives annuitant information 9 a from newannuity investors. This information will typically include informationabout the annuitant that is pertinent to mortality, (e.g., age), thetype or types of annuities selected, and the annuity investor'sinvestment choices. For example, the choice may be a combination of afixed payment annuity and one or more variable payment annuities, witheach different annuity supported by different underlying asset classessuch as stocks, bonds, etc. Administrative system 11 also receivestransfer requests 9 b from existing annuity owners. Annuitantinformation 9 a and transfer requests 9 b may be input into a memoryaccessible by administrative system 11, using any suitable input device,preferably a keyboard attached to a video monitor which displays fieldsfor data to be input and which echoes the input data. Alternatively,this information could be received from the annuity investorelectronically by way of touch-tone telephone and modem, or by way ofthe Internet.

Administrative system 11 also receives annuity pricing information 13.Annuity pricing information 13 includes market interest rates used toprice annuities. These interest rates may be tied to an objective marketrate such as treasury rates, a corporate bond rate or other objectiverate. The rates used to price annuities may be related to an objectivemarket interest rate by a constant offset, a multiplicative factor, anexponential function, or any other suitable relationship. Annuitypricing information 13 may be entered into a terminal or received frommemory accessible as an electronic database by administrative system 11.

Annuity pricing information 13 and mortality data 12 is passed byadministrative system 11 to a pricing module 10. Pricing module 10 maybe implemented as a subroutine that functions to cause the computer todetermine the market value of annuities based on pricing information 13,and mortality data 12. Mortality data 12 is used to compute actuarialpresent values of annuities and comprises compiled statisticalinformation, typically in table format, related to the age of theannuitant. Alternatively, mortality data may be computed according toalgorithms known in the art. In a preferred embodiment, however,mortality data is stored in memory locations accessible toadministrative system 11.

Administrative system 11 also receives asset price information 14 whichcomprises the net asset values of the underlying assets for eachinvestment subaccount. Asset price information 14 is used by system 5 todetermine the investment performance of the assets underlying theannuity funds. Annuity pricing information 13 and asset priceinformation 14 can be implemented as databases that can be updated withnew information, either by an external source electronically or by humaninput using any suitable input device. Annuity pricing information 13,asset price information 14, and mortality data 12, may be accessed byadministrative system 11 from a memory location such as a magneticstorage tape or other memory configuration.

Administrative system 11 provides contract information for each newannuitant to contract unit 18. Contract unit 18 provides a writtencontract for the new annuitant, preferably by way of a commerciallyavailable printing device such as a laser printer. A reserve module 15receives data from administrative system 11 and calculates actuarialreserves. Administrative system 11 also provides data tofinancial/accounting module 16, which prepares financial and accountingreports. These reports may be displayed on a video monitor, printed onpaper, or otherwise recorded in a human-readable medium. Such reportsmay include the account values of each annuity investor or annuitant, atransaction report for each annuitant, payment information for eachannuity, past performance of each annuity, actuarial reserves, etc.

The preferred embodiment also comprises a mortality adjustment module17. When an annuitant dies the underlying fund value belongs to theinsurer and is removed from the portfolio of annuities. In addition, theinsurer must credit an annuitant's fund balance for survival thatexceeds the insurer's expectation. These functions are performed bymortality adjustment module 17, from data received by administrativemodule 11, by comparing the present value of future payments to theactual fund balance. This is done on a life-by-life basis within eachvariable fund. If the present value of future payments is less than theannuitant fund balance, then the insurer must add cash to the investmentfund. This may be performed automatically by administrative system 11,which may electronically debit an account 110 of the insurer. Similarly,when an annuitant dies the underlying fund balance may be electronicallycredited to account 110 of the insurer by administrative system 11.These debits and credits may be reflected in reports generated byfinancial/accounting module 16.

Administrative system 11 receives transfer request 9 b and causes properfund transfers between sub-accounts for the annuitant. A subaccount, orinvestment division, is an account for funds invested in assetsunderlying the annuity. The amount to be transferred and the value ofthe accounts of each annuitant are stored in a memory storage, and mayalso be provided in a report generated by financial/accounting module16.

Administrative system 11 causes proper payments 19 to be made to eachannuitant. This may be done by electronic transfer of funds to anannuitant's account 191 or by causing a check payable to the annuitantto be drafted and mailed 192. All payments due and amounts received inpremiums 9 c will be reported by financial/accounting module 16, eitherperiodically or upon request. Premiums 9 c may be received by electronicfunds transfer methods well known in the art or by recorded receipt ofcash or cash equivalent funds.

A transfer request 9 b may be of one of three types: from fixed funds tovariable funds, from variable funds to variable funds, or from variablefunds to fixed funds. A transfer may be from one or more funds to one ormore other funds, as requested by the annuity owner. For example, a 30%transfer from one variable fund could be allocated as follows: 10% to afixed fund and 10% each to two other variable funds. The inventionincludes such multiple fund transfers.

System 5 further comprises a payment progression module 200 whichdetermines future payments based upon annuity pricing rates 13, assetprice information 14, and mortality data 12. Clearly, paymentprogression module 200 may be a subroutine called directly byadministrative system 11. However, in a preferred embodiment, paymentprogression module 200 is implemented as a subroutine called directly bypricing module 10. To understand the operation of payment progressionmodule 200, consider a payment b_(n) from a variable single life annuitydue with annual payments at a regularly scheduled payment time, n. Itwill be assumed that annuity payments are scheduled at equal timeintervals, so that the next subsequent payment, b_(n+1), is scheduled atthe next subsequent payment time, n+1. The relationship between b_(n+1)and b_(n) is given by: $\begin{matrix}{b_{n + 1} = {b_{n}{R\left( \frac{{\overset{¨}{a}}_{{x + n + 1},i_{n}}}{{\overset{¨}{a}}_{{x + n + 1},i_{n + 1}}} \right)}}} & (8)\end{matrix}$

where $R = \left( \frac{1 + r_{n + 1}}{1 + i_{n}} \right)$

is the investment performance factor, for the interval between time nand time n+1. The investment return is denoted by r_(n+1), i_(n) is thepricing interest rate at time n, and i_(n+1), is the pricing interestrate at time n+1. Equation (8) provides the payment, b_(n+1), to be madeat time n+1, next subsequent to time n, where n and n+1 are regularlyscheduled payment times and where such payments are scheduled at equaltime intervals. It will be understood that r_(n+1) is a net investmentreturn after investment management fees, administrative expenses, andmortality and expense risk charges are deducted. It will further beunderstood that payment progression of equation (8) will apply to othertypes of variable annuities as well (e.g., joint life, etc.).

The investment performance factor, R=(1+r_(n+1))/(1+i_(n)) will begreater than 1 if r_(n+1)>i_(n) and will be less than 1 ifr_(n+1)<i_(n). Thus, the investment performance factor R will increasethe subsequent payment if, in the interval from n to n+1, the fundout-performs the pricing interest rate used at the start of thatinterval. Conversely, R will decrease the subsequent payment if itunder-performs the prior pricing interest rate. Thus, to the extent thatthe fund earns a higher return than the prior pricing interest rate,future payments will rise.

The pricing interest rate, i_(n), used in the present system, is similarto the benchmark assumed investment rate (AIR) used in the traditionalvariable annuity. The main difference is that the assumed investmentrate used in the prior art is generally a relatively low rate and isheld constant for all future payment calculations. For the variableannuity system of the present invention the pricing interest rate is amoving market interest rate based on current market interest rates ateach payment determination date.

As a result of using current pricing interest rates instead of anarbitrary assumed investment rate, the initial variable annuity paymentat the time of transfer or purchase from a fixed to variable annuity isthe same as that under the fixed annuity. However, whereas fixed annuitypayments are held constant, the variable annuity has the potential ofhigher future payments.

The interest adjustment factor, S=(ä_(x+n+1) _(r) _(i) _(n) /ä_(x+n+1)_(r) _(i) _(n+1) ) compensates for the change in actuarial value of thevariable annuity caused by the change in pricing interest rates fromtime n to time n+1. If the numerator of S is viewed as a constant andthe denominator is considered a variable that changes with changingpricing interest rates, then the factor reduces to:${f(i)} = \frac{1}{{\overset{¨}{a}}_{x}}$

and the derivative of this function is:$\frac{{f(i)}}{i} = \frac{{v({Ia})}_{x}}{\left( {\overset{¨}{a}}_{x} \right)^{2}}$

where v=1/(1+i) and (Ia)_(x) denotes an increasing annuity function. Thederivative is positive which means that as interest rates rise, thefunction f(i) increases as well. Thus, the interest related impact ofrising rates is an increased payment.

After calculating future annuity payments, payment progression module200 passes this information back to administrative system 11 whichcauses proper payments 19 to be credited to the annuitant at theappropriate times. These payments may be distributed periodically, atspecified intervals, monthly, quarterly, annually, etc. Payments arerecorded in a system memory location and credited to the payee. Theseamounts are reported by financial/accounting module 16.

A transfer to any annuity may be made at the request of the annuitant atthe time of a scheduled payment, at any time between payment periods, oreven prior to a first scheduled payment. Thus, a payment calculationdate may be the date that the next payment is determined or it may be aninterim date for determination of the amount to be transferred asrequested. When a transfer occurs between regularly scheduled paymenttimes, it is necessary to derive a pre-transfer payment, b_(k), at timeof transfer, k, based on an investment performance factor, R, thataccounts for a time interval between the time, n, of the next precedingregularly scheduled payment, b_(n), and time of transfer k. Again, inthe case of a single life annuity due with annual payments, theinvestment performance factor, R, is equal to (1+r_(k))/d, where$d = \frac{\left( {1 + i_{n}} \right)}{\left( {i + i_{k}} \right)^{n + 1 - k}}$

and the pretransfer payment, b_(k), is related to the prior payment,b_(n), as follows: $\begin{matrix}{b_{k} = {b_{n}{R\left( \frac{{\overset{¨}{a}}_{{x + n + 1},i_{n}}}{{\overset{¨}{a}}_{{x + n + 1},i_{k}}} \right)}}} & (9)\end{matrix}$

Once the pretransfer payment, b_(k), is determined, an interim payment,b_(l), must be derived. The interim payment, b_(l), will generally beequal to the pre-transfer payment, b_(k), plus an additional amountproportional to the amount to be transferred to the fund. Further,b_(l), may include an amount based on a contribution to the annuity bythe annuity owner at time k. If the amount contributed at time k is P,then b_(l) is increased by an amount equal to:$\frac{P}{{v^{n + 1 - k}\left( {{}_{n + 1 - k}^{}{}_{x + k}^{}} \right)}{\overset{¨}{a}}_{{x + n + 1},i_{k}}}$

where v^(n+1−k) is the interest discount factor at time k for paymentscommencing at time n+1; and where _(n+1−k)p_(x+k)* is the probabilitythat a life at age x+k survives to age x+n+1. When the transfer occursbetween regularly scheduled payments, it is also necessary to compute apost-transfer payment, b_(n+1), to be paid at the next regularlyscheduled payment time, n+1, from the interim payment, b_(l), based onan investment performance factor, R, that accounts for a time intervalbetween the time of transfer, k, and the time, n+1, of the nextregularly scheduled payment. In this case, the investment performancefactor, R, is equal to (1+r_(n+1))/d, where d=(1+i_(k))^(n+1−k) and thepost-transfer payment, b_(n+1), is related to the interim payment,b_(l), as follows: $\begin{matrix}{b_{n + 1} = {b_{l}{R\left( \frac{{\overset{¨}{a}}_{{x + n + 1},i_{k}}}{{\overset{¨}{a}}_{{x + n + 1},i_{n + 1}}} \right)}}} & (10)\end{matrix}$

Transfers are a key aspect of the present invention. Since the fixed andall variable funds use the same pricing interest rates, funds can betransferred without incurring any payment discontinuities. In addition,by allowing the pricing interest rates to fluctuate with marketmovements, transfers into and out of the fixed account do not result ininterest rate or disintermediation risk to the insurer. Interest raterisk may arise upon a contract holder's request to transfer funds fromthe fixed account to a variable account when interest rates haveincreased. In such a situation the supporting fixed income assets willfall in value resulting in a market value loss when the insurer sellsthese assets to transfer cash from the fixed fund to the selectedvariable fund. Using current pricing interest rates to determine themarket value of the transferred funds allows the insurer to mitigatethis interest rate risk. Disintermediation occurs when customersexercise cash flow options in an effort to select against the insurer.By using current market interest rates to determine resulting paymentsfrom transfers into or out of the fixed account, the insurer shifts thisand all investment risk to the contract holder.

The transfer process will now be described in further detail withreference to a single life annuity due with annual payments. It will beunderstood that the process applies for other types of variableannuities as well. It will further be understood that the transferprocess will apply to a transfer prior to an initial payment orsubsequent to a payment at time n.

A diagram of the fixed-to-variable transfer process is shown in FIG. 2for a transfer from a fixed fund, F, to a variable fund, V, at time oftransfer, k, for a single life annuity due with annual payments. Atransfer request 9 b is received by administrative system 11. Transferrequest 9 b will comprise the amount to be transferred, T, or a fractiony of the pre-transfer market value of the fixed fund. The pre-transfermarket value, MV, of the fixed fund, F, is computed in pricing module 10by determining the actuarial present value of future payments usingcurrent annuity pricing interest rates 13 and mortality data 12. Oncethe market value, MV, is determined, 53, the transfer amount T isremoved from the fixed fund 54 and the post-transfer fixed fund paymentis reduced proportionately, 55. This is shown in FIG. 2 with:

FPAY_(b) = Fixed Fund Payment Before Transfer FPAY_(a) = Fixed FundPayment After Transfer = FPAY_(b)x (1 − y) VPAY_(b) = Variable FundPayment Before Transfer VPAY_(a) = Variable Fund Payment After Transfer= VPAY_(b) + FPAY_(b)x (y) FFUND_(b) = Fixed Fund Before TransferFFUND_(a) = Fixed Fund After Transfer = FFUND_(b) − T VFUND_(b) =Variable Fund Before Transfer VFUND_(a) = Variable Fund After Transfer =VFUND_(b) + T y = T/MV

For example, if it is determined that the transfer dollar amount is 75%of the pre-transfer fixed fund balance, then the post-transfer fixedpayment is 25% (100%−75%) of the pre-transfer fixed payment. Thepre-transfer variable fund balance, VFUND_(b), and pre-transfer variablefund payment, VPAY_(b), is computed for the selected variable fund, V,59. This assumes that the annuitant currently has funds in the selectedvariable fund, otherwise the selected fund will be set up byadministrative system 11 as a new annuitant fund and the pre-transferfund balance and payment is zero. The pre-transfer variable fund paymentis calculated in payment progression module 200 as described above,taking into account investment fund performance, via changes in assetprices 14, and interest rate changes from the later of last paymentcalculation date or transaction date to the transfer effective date. Inparticular, at the time of transfer, k, the pre-transfer payment at timek, is calculated from the payment, b_(n), made at payment time n, nextpreceding time k. Thus, the pre-transfer payment, b_(k)=VPAY_(b), attime of transfer will be: $\begin{matrix}{{b_{k} = {{b_{n}\left( \frac{1 + r_{k}}{d} \right)}\left( \frac{{\overset{¨}{a}}_{{x + n + 1},i_{n}}}{{\overset{¨}{a}}_{{x + n + 1},i_{k}}} \right)}}{{{where}\quad d} = {\frac{\left( {1 + i_{n}} \right)}{\left( {i + i_{k}} \right)^{n + 1 - k}}\quad {and}}}} & (11)\end{matrix}$

where r_(k) is the actual rate of return of the assets underlying thevariable fund during the time interval from n to k, as derived fromasset price information 14 at time n and at time k. The quantity, i_(k),is the pricing interest rate assumed at time k based on annuity pricinginformation 13 at time k. The quantity i_(n) is the pricing interestrate assumed at time n based on annuity pricing information 13 at timen. Note that in a preferred embodiment, the pricing interest rate,i_(k), in equation (11), used to calculate the pre-transfer payment fromthe transferee fund, V, at time of transfer, k, is the same rate used tocompute the market value of the transferor fund, F. Now, thepost-transfer variable fund balance, VFUND_(a) will then equal thepre-transfer variable fund balance plus the transferred amount T, 60.The post-transfer variable fund payment, VPAY_(a) will then equal thepre-transfer variable fund payment, b_(k), plus the proportionatepre-transfer fixed fund payment amount: that isVPAY_(a)=b_(k)+FPAY_(b)×(y), 60. Thus, in the 75% fund transferdescribed above, the variable fund payment is increased by 75% of thepre-transfer fixed payment. The post transfer variable fund payment,VPAY_(a), computed at time k, is an interim payment. In a preferredembodiment, this interim payment will not actually be paid out unlessthe effective date of the transfer coincides with a regularly scheduledvariable fund payment, i.e., k=n+1. In an alternative embodiment, theinterim payment may be paid out at the time of transfer or at a timebetween the time of transfer, k, and the next subsequent regular paymentdate at time n+1. At the time of the next regular payment date, timen+1, subsequent to the time of transfer, k, the payment from thevariable fund at time n+1, b_(n+1) will be based upon the post-transferpayment VPAY_(a) determined at time k and the fund performance in theinterval from time k to time n+1: $\begin{matrix}{b_{n + 1} = {{{VPAY}_{a}(k)}\left( \frac{1 + r_{n + 1}}{d} \right)\left( \frac{{\overset{¨}{a}}_{{x + n + 1},i_{k}}}{{\overset{¨}{a}}_{{x + n + 1},i_{n + 1}}} \right)}} & (12)\end{matrix}$

where d=(1+i_(k))^(n+1−k) and

where r_(n+1) is the actual rate of return of the assets underlying thevariable fund during the time interval from k to n+1, as derived fromasset price information 14 at time k and at time n+1. The quantity,i_(k), is the pricing interest rate at time k based on annuity pricinginformation 13 at time k, i_(n+1) is the pricing interest rate at timen+1, based on annuity pricing information 13, at time n+1, andVPAY_(a)(k) is the post transfer payment calculated at time of transferk.

A variable-to-variable transfer is diagrammed in FIG. 3 for a transferof an amount T from a first variable fund V₁ to a second variable fundV₂, at a time of transfer, k. The pre-transfer V₁ fund balance,V₁FUND_(b), is computed using annuity pricing information 13 at time kin pricing module 10. The pre-transfer fund payment, b_(k), at time oftransfer, k, for fund V₁ is computed by payment progression module 200,as described above, taking into account investment fund performance, viachanges in asset prices 14, and changes in interest rates from the laterof last payment calculation date or transaction date to the transfereffective date: $\begin{matrix}{{b_{k} = {{b_{n}\left( \frac{1 + r_{k}}{d} \right)}\left( \frac{{\overset{¨}{a}}_{{x + n + 1},i_{n}}}{{\overset{¨}{a}}_{{x + n + 1},i_{k}}} \right)}}{{{where}\quad d} = {\frac{\left( {1 + i_{n}} \right)}{\left( {i + i_{k}} \right)^{n + 1 - k}}\quad {and}}}} & (13)\end{matrix}$

where r_(k) is the actual rate of return of the assets underlying thevariable fund V₁, during the time interval from n to k, as derived fromasset price information 14 at time n and at time k. The quantity, i_(k),is the pricing interest rate assumed at time k based on annuity pricinginformation 13, at time k, i_(n) is the pricing interest rate assumed attime n based on annuity pricing information 13 at time n, and b_(n) isthe V₁ fund payment at time n, next preceding transfer time k.

Once the pre-transfer fund balance V₁FUND_(b) and pre-transfer paymentV₁PAY_(b) for the fund V₁, 74, are determined, the amount T to betransferred is subtracted from the fund V₁ to determine the posttransfer fund balance V₁FUND_(a) of fund V₁. The variable fund V₁payment is reduced proportionately, 75. For example, if it is determinedthat the amount, T, that is transferred is 75% of the pre-transfer fundbalance of fund V₁, then the post-transfer payment from fund V₁,V₁PAY_(a), is 25% (100%−75%) of the pre-transfer payment,b_(k)=V₁PAY_(b), from fund V₁.

A pre-transfer fund balance V₂PAY_(b) and pre-transfer payment,b_(k)=V₂PAY_(b), 79, for the variable fund V₂ is determined by paymentprogression module 200: $\begin{matrix}{{b_{k} = {{b_{n}\left( \frac{1 + r_{k}}{d} \right)}\left( \frac{{\overset{¨}{a}}_{{x + n + 1},i_{n}}}{{\overset{¨}{a}}_{{x + n + 1},i_{k}}} \right)}}{{{where}\quad d} = {\frac{\left( {1 + i_{n}} \right)}{\left( {i + i_{k}} \right)^{n + 1 - k}}\quad {and}}}} & (14)\end{matrix}$

where r_(k) is the actual rate of return of the assets underlying thevariable fund V₂, during the time interval from n to k, as derived fromasset price information 14 at time n and at time k. The quantity, i_(k),is the pricing interest rate at time k based on annuity pricinginformation 13, i_(n) is the pricing interest rate assumed at time nbased on annuity pricing information 13 at time n, and b_(n) is the V₂payment at time n, next preceding transfer time k. This assumes that theannuitant currently has funds in the selected variable fund, V₂.Otherwise the selected fund is set up by administrative system 11 as anew annuitant fund and the pre-transfer fund balance and payment iszero. The new fund balance for variable fund V₂, will be thepre-transfer fund balance plus the transferred amount T, 80. Thepost-transfer payment from variable fund V₂, V₂PAY_(a), is derived fromthe pre-transfer V₂ payment b_(k), plus the proportionate pre-transferV₁ fund balance: V₂PAY_(a)=V₂PAY_(b)+V₁PAY_(b)×(y), wherey=T/(V₁FUND_(b)). For the 75% transfer example above, the new paymentwill be increased by 75% of the pre-transfer payment of variable fundV₁. This is shown in FIG. 3 with:

V₁PAY_(b) = Variable Fund V₁ Payment Before Transfer V₁PAY_(a) =Variable Fund V₁ Payment after Transfer = V₁PAY_(b)x (1 − y) V₁FUND_(b)= Variable Fund V₁ Balance Before Transfer V₁FUND_(a) = Variable Fund V₁Balance After Transfer = V₁FUND_(b) − T V₂PAY_(b) = Variable Fund V₂Payment Before Transfer V₂PAY_(a) = Variable Fund V₂ Payment afterTransfer = V₂PAY_(b) + V₁PAY_(b)x (y) V₂FUND_(b) = Variable Fund V₂Balance Before Transfer V₂FUND_(a) = Variable Fund V₂ Balance AfterTransfer = V₂FUND_(b) + T y = T/(V₁FUND_(b))

The post transfer V₁ variable fund payment, V₁PAY_(a), computed at timek, is an interim payment. In a preferred embodiment, this interimpayment will not actually be paid out unless the effective date of thetransfer coincides with a regularly scheduled variable fund payment,i.e., k=n+1. In an alternative embodiment, the interim payment may bepaid out at the time of transfer or at a time between the time oftransfer, k, and the next subsequent regular payment date at time n+1.

Similarly, the post transfer V₂ variable: fund payment, V₂PAY_(a),computed at time k, is an interim payment. In a preferred embodiment,this interim payment will not actually be paid out unless the effectivedate of the transfer coincides with a regularly scheduled variable fundpayment, i.e., k=n+1. In an alternative embodiment, the interim paymentmay be paid out at the time of transfer or at a time between the time oftransfer, k, and the next subsequent regular payment date at time n+1.

Now, at the time of the next regular payment from variable fund V₁,time=n+1, the payment from fund V₁ at time n+1, b_(n+1), is based on thepost-transfer payment for fund V₁ calculated at time k, V₁PAY_(a)(k),and the rate of return from the underlying assets during the timeinterval from k to n+1: $\begin{matrix}{b_{n + 1} = {V_{1}{{PAY}_{a}(k)}\left( \frac{1 + r_{n + 1}}{d} \right)\left( \frac{{\overset{¨}{a}}_{{x + n + 1},i_{k}}}{{\overset{¨}{a}}_{{x + n + 1},i_{n + 1}}} \right)}} & (15)\end{matrix}$

where d=(1+i_(k))^(n+1−k) and

where r_(n+1) is the actual rate of return of the assets underlying thevariable fund V₁ during the time interval from k to n+1, i_(k) is thepricing interest rate at time k based on annuity pricing information 13at time k, i_(n+1) is the pricing interest rate at time n+1, based onannuity pricing information 13, at time n+1, and V₁PAY_(a)(k) is thepost transfer payment for V₁ calculated at time of transfer k.

Similarly, at the time of the next regular payment from variable fundV₂, time=n+1, the payment from fund V₂ at time n+1, b_(n+1), is based onthe post-transfer payment for fund V₂ calculated at time k,V₂PAY_(a)(k), and the rate of return from the underlying assets duringthe time interval from k to n+1: $\begin{matrix}{b_{n + 1} = {V_{2}{{PAY}_{a}(k)}\left( \frac{1 + r_{n + 1}}{d} \right)\left( \frac{a_{{x + n + 1},i_{k}}}{a_{{x + n + 1},i_{n + 1}}} \right)}} & (16)\end{matrix}$

where d=(1+i_(k))^(n+1−k) and

where r_(n+1) is the actual rate of return of the assets underlying thevariable fund V₂ during the time interval from k to n+1, i_(k) is thepricing interest rate at time k based on annuity pricing information 13at time k, i_(n+1) is the pricing interest rate at time n+1, based onannuity pricing information 13, at time n+1, and V₂PAY_(a)(k) is thepost transfer payment for V₂ calculated at time of transfer k.

The case of a variable-to-fixed fund transfer is diagrammed in FIG. 4,for a transfer from variable fund V to fixed fund F, at time k. Thepre-transfer variable fund balance, VFUND_(b) and pre-transfer variablefund payment, VPAY_(b), is computed for the time of transfer, k, 94. Thepre-transfer payment, b_(k)=VPAY_(b), of variable fund V is determinedby payment progression module 200 as described above, taking intoaccount investment fund performance, via the daily asset prices 14, andinterest rate changes from the later of last payment calculation date ortransaction date to the transfer effective date: $\begin{matrix}{{b_{k} = {{b_{n}\left( \frac{1 + r_{k}}{d} \right)}\left( \frac{{\overset{¨}{a}}_{{x + n + 1},i_{n}}}{{\overset{¨}{a}}_{{x + n + 1},i_{k}}} \right)}}{{{where}\quad d} = {\frac{\left( {1 + i_{n}} \right)}{\left( {i + i_{k}} \right)^{n + 1 - k}}\quad {and}}}} & (17)\end{matrix}$

where r_(k) is the actual rate of return of the assets underlying thevariable fund during the time interval from n to k, i_(n) is the pricinginterest rate at time n based on annuity pricing information 13, andi_(k) is the pricing interest rate at time k based on annuity pricinginformation 13. The transfer amount, T, is then removed from thevariable fund, V, and the payment is proportionately reduced, 95:VPAY_(a)=Variable Fund Payment After Transfer=VPAY_(b)×(1−y), wherey=T/VFUND_(b). If a fixed fund, F, does not exist for the personrequesting the transfer, it is set up as a new annuitant fund byadministrative system 11. The new fixed fund payment equals thepre-transfer payment plus a proportionate amount of the pre-transfervariable payment 96. For example, if 75% of the variable fund V wastransferred to the fixed fund F, then the fixed fund payment wouldincrease by 75% of the pre-transfer variable fund payment. Finally, thetransferred amount T is placed in the fixed fund 97. This is shown inFIG. 4 with:

FPAY_(b) = Fixed Fund Payment Before Transfer FPAY_(a) = Fixed FundPayment After Transfer = FPAY_(b) + VPAY_(b)x (y) VPAY_(b) = VariableFund Payment Before Transfer VPAY_(a) = Variable Fund Payment AfterTransfer = VPAY_(b)x (1 − y) VFUND_(b) = Variable Fund Balance BeforeTransfer VFUND_(a) = Variable Fund Balance After Transfer = VFUND_(b) −T y = T/VFUND_(b)

The post transfer variable fund payment, VPAY_(a), computed at time k,is an interim payment. In a preferred embodiment, this interim paymentwill not actually be paid out unless the effective date of the transfercoincides with a regularly scheduled variable fund payment, i.e., k=n+1.In an alternative embodiment, the interim payment may be paid out at thetime of transfer or at a time between the time of transfer, k, and thenext subsequent regular payment date at time n+1.

At the next payment date, time n+1, for the variable annuity, the amountto be paid, b_(n+1), is computed based on the events at time oftransfer, k: $\begin{matrix}{b_{n + 1} = {{{VPAY}_{a}(k)}\left( \frac{1 + r_{n + 1}}{d} \right)\left( \frac{{\overset{¨}{a}}_{{x + n + 1},i_{k}}}{{\overset{¨}{a}}_{{x + n + 1},i_{n + 1}}} \right)}} & (18)\end{matrix}$

where d=(1+i_(k))^(n+1−k) and

where r_(n+1) is the actual rate of return of the assets underlying thevariable fund V during the time interval from k to n+1, i_(k) is thepricing interest rate at time k based on annuity pricing information 13at time k, i n+1 is the pricing interest rate at time n+1, based onannuity pricing information 13, at time n+1, and VPAY_(a)(k) is the posttransfer payment for V calculated at time of transfer k.

In a preferred embodiment, once the amounts in each fund after transferare determined, administrative system 11 may cause buy/sell module 20 toexecute buy and sell orders as necessary to ensure that the new fundbalances are backed by assets of value at the time of transfer equal tothe fund balances. Alternatively, if permitted by law, the insurer mayexercise investment options while crediting the annuity owner with theinvestment performance of the underlying assets and market interest ratechanges measured from the effective transfer date. For instance,buy/sell orders may be deferred to take advantage of expected changes inasset prices, while contractually the insurer is obligated to theannuitant for the performance of the assets from the effective date oftransfer, rather than from the time of buying or selling the underlyingassets. The amount to be credited to the annuitant is stored in a systemmemory and is reported by financial/accounting module 16.

Further, it should be emphasized that each investor may request morethan a single transfer from one fund to another. An annuity owner maymake multiple transfer requests to be implemented on the same transferdate. For example, an annuity owner may request transfer of an amount T₁from fund 1 to fund 2, an amount T₂, from fund 1 to fund 3, an amount T₃from fund 2 to fund 4, etc. These transfer requests would then beimplemented by system 5 sequentially on the same date and as rapidly asthe limits of computational speed will permit.

Implementing the transfer methods described herein, the annuitantexperiences no adverse discontinuity in payment, while bearing the riskof changes in interest rates and changes in the value of the assetsunderlying the variable funds. In each instance, at the time oftransfer, the amount to be transferred may be considered the netconsideration used to purchase the annuity to which the transfer ismade. When the transferee annuity and the transferor annuity are bothvalued using the. same current pricing rate and the same mortalityassumptions, the payment attributable to the amount transferred will beequal before and after the transfer. In a preferred embodiment themortality assumptions at the time the annuity owner first purchases anannuity will be used at the time of transfer and payment recalculationdates to compute fund balances and payments. In this case mortality riskis not altered after initial purchase. In an alternative embodiment, themortality assumptions that prevail at the time of transfer or paymentrecalculation may be used in the determination of fund balances andpayments. Further, in an alternative embodiment, different mortalityassumptions could be used in valuation of the transferee annuity and thetransferor annuity at the time of transfer. To the extent that theassumptions are different, a discontinuity in payment could occur thatcould either be favorable or disfavorable to the investor. Such adiscontinuity could be offset, in whole or in part, by using differingpricing rates for valuation of the transferee annuity and the transferorannuity. In fact, it will be clear that a discontinuity in payment canbe controlled or eliminated by assumption of different pricing rates anddifferent mortality rates for the transferee and transferor annuities.Thus, the present invention offers the flexibility of allocating anyproportion of interest rate risk and mortality risk between the insurerand annuitant at the time of transfer, subject to contractual andregulatory constraints.

The invention benefits purchasers of payout annuities by providing amore desirable initial payment level than is offered by the prior artform. Furthermore, the invention allows contract holders to transferfunds into and out of the fixed payment option without incurring paymentdiscontinuities. The invention also provides a fair valuation of thecontract holder's annuity by using current pricing rates to determinethe present value of future payments from the annuity from which fundsare transferred. Whereas a traditional variable annuity providespayments that should ultimately rise above the payment of the fixedannuity, the initial variable annuity payment is lower than the fixedfund payment. The present invention provides a new variable annuity thatprovides an initial payment equal to the fixed fund payment, withsubsequent payments that should rise above this level. Results of thepresent invention in comparison to a fixed fund and traditional annuityare shown in FIG. 5. The AIR of the traditional variable annuity is 4%,which results in an initial payment below the fixed fund payment whichis based upon an interest rate of 7%. In contrast, the new variableannuity payment progression starts with an initial payment equal to thefixed fund payment. This is so because both the fixed fund and the newvariable fund are priced at the same interest rate of 7%. Assuming aconstant rate of investment performance of 10% for both variable funds,the traditional variable fund payments will ultimately exceed the newvariable fund payments. This is because the investment performancefactor for computing the traditional variable fund payment progressionexceeds the investment performance factor for computing the new variablefund payment progression.

While this invention has been described with reference to the foregoingpreferred embodiments, the scope of the present invention is not limitedby the foregoing written description. Rather, the scope of the presentinvention is defined by the following claims and equivalents thereof.

What is claimed is:
 1. A method for managing and controlling annuitiesand distribution of annuity payments, comprising: receiving: transferrequests for transferring amounts among said annuities; annuity pricinginformation for determining pricing interest rates for said annuities;asset price information for determining actual rates of return forassets underlying said annuities; and mortality data for each annuitantof said annuities; deriving pricing interest rates from said annuitypricing information; determining actual rates of return for saidunderlying assets of said annuities from said asset price information;computing actuarial present values from said pricing interest rates andsaid mortality data; computing investment performance factors from saidpricing interest rates and said actual rates of return; computinginterest adjustment factors from said actuarial present values; anddetermining payment progressions for said annuities from said investmentperformance factors and said interest adjustment factors; wherein atleast one of said computing or determining steps is performed bysoftware running on a data processing apparatus.
 2. The method of claim1, further comprising the steps of: transferring funds between saidannuities; and transferring payments from said annuities to memorylocations representative of separate accounts of payees.
 3. The methodof claim 2, wherein said transferring of funds between annuities furthercomprises buying and selling assets underlying said annuities.
 4. Asystem for managing and controlling annuities and distribution ofannuity payments, comprising: data storage for storing in accessiblememory: transfer requests for transferring amounts among said annuities;annuity pricing information for determining pricing interest rates forsaid annuities; asset price information for determining actual rates ofreturn for assets underlying said annuities; and mortality data for eachannuitant of said annuities; and a data processor for: deriving pricinginterest rates from said annuity pricing information; determining actualrates of return for said underlying assets of said annuities from saidasset price information; computing actuarial present values from saidpricing interest rates and said mortality data; computing investmentperformance factors from said pricing interest rates and said actualrates of returns; computing interest adjustment factors from saidactuarial present values; determining payment progressions for saidannuities from said investment performance factors and said interestadjustment factors; transferring funds between said annuities; andtransferring payments from said annuities to memory locationsrepresentative of separate accounts of payees.
 5. The system of claim 4,wherein said transferring of funds between annuities further comprisesbuying and selling assets underlying said annuities.